Brewer tax-hike plan gets tepid response

Arizona Gov. Jan Brewer addresses a joint session of the Legislature to discuss "Arizona's fiscal future" on Wednesday at the Capitol in Phoenix.

PHOENIX – Republican Gov. Jan Brewer on Wednesday proposed a $1 billion temporary tax increase “as a very last resort” along with similar amounts of spending cuts and use of federal stimulus money to close a budget shortfall that is one of the largest in the nation.

“Arizona is in a financial crisis” and must face that reality, Brewer said. “The truth is, we cannot afford the size of government we now have, and even a slowly recovering economy will not fix the problem.”

Brewer laid out her five-point plan at a joint session of the Arizona Legislature Wednesday.

In addition to a tax increase and more spending cuts, she called for an election to allow voters to modify a referendum they approved in 1998 that prohibits lawmakers from redirecting “protected” funds away from K-12 education and health care programs.

About 35 percent of the state’s overall annual budget is protected from legislative redirection by Proposition 105.

That includes about $2.2 billion for K-12 education and about $1 billion for the Arizona Health Care Cost Containment System, the state’s health plan for the poor. Those are protected under voter-approved initiatives and are immune to legislative cuts. Another $400 million for Department of Health Services funding has similar protection.

Brewer later told reporters the tax increase likely would have to last several years but that its duration would be worked out with lawmakers, along with which tax should be increased.

A one-cent increase in the state sales tax would raise about $1 billion annually.

Arizona’s current sales tax is 5.6 percent. The city of Tucson tacks on another 2 percent. Neither jurisdiction imposes the sales tax on groceries or prescription drugs.

The Pima County Regional Transportation Authority sales tax is one-half percent. That’s a local total in Tucson of 8.1 percent.

Pima County does not have a sales tax.

Brewer proposed that the tax increase be approved either by the Legislature and signed by the governor, or by voters in a special election in late spring.

“It’s an economic downer,” said House Majority Leader John McComish, R-Phoenix. “We look at a tax increase as a last resort, and we’re not near looking at all the other possibilities.”

Legislative approval of a tax increase would require two-thirds votes by each chamber, but sending a measure to voters would require only simple majorities.

Area Democratic legislators took a page from the Republican national playbook used in criticizing President Obama’s budget for lacking specifics.

“It was so short on details that it didn’t even look like a plan,” Rep. Phil Lopes, D-Tucson, said.

“She didn’t say if it would be a sales tax increase or an income tax increase.”

Rep. Daniel Patterson, D-Tucson, echoed Lopes’ remarks.

“If she wants support for this, she has to be a lot more specific,” Patterson said.

Efforts to reach Tucson-area Republican legislators by phone and by e-mail were unsuccessful Wednesday.

Some Republican conservatives balked at a tax increase, and Republican Sen. Ron Gould of Lake Havasu City walked out of the House chamber when Brewer proposed the tax increase.

“I was disgusted that the governor went to a tax increase this early in the legislative session,” Gould said later. “We’re not that deep into the game. We can fix it with cuts and with stimulus money. We don’t need a tax increase.”

House Appropriations Chairman John Kavanagh, R-Fountain Hills, said he’d rather borrow against lottery revenue as a temporary funding bridge than raise taxes. However, former House Speaker Jim Weiers, R-Phoenix, said Brewer’s proposal was honest and responsible.

Brewer also called for using roughly $1 billion of stimulus money annually for three years to help get the state’s fiscal house back in order. She said she wants lawmakers to send her fast-track legislation by March 14 to use stimulus money to undo budget cuts eliminating child-care subsidies.

Spending cuts, including repeats of many implemented in a midyear fix of the current budget, will be the cornerstone of the final $1 billion of Brewer’s $3 billion proposal, though lawmakers could include other steps, Brewer spokesman Paul Senseman said.

“Make no mistake. A budget without further reductions will not receive my signature,” Brewer cautioned lawmakers.

She also called for other changes in the state’s fiscal ground rules, including a doubling of the now-depleted rainy day fund and new limits on spending from that fund. Also limited would be sweeping dollars from special-purpose funds.

Arizona’s economy has been hit hard by the recession, with state tax collections hammered by the housing industry’s meltdown and the impact of slumping consumer confidence on retail sales. The state’s unemployment rate in January was 7 percent, up from 6.6 percent in December.

The projected $3 billion shortfall for next fiscal year would represent 28 percent of the next fiscal year’s budget based on spending of $11 billion. Only Nevada’s shortfall at 37.6 percent would be larger by percentage, according to a National Conference of State Legislatures survey conducted in January.

Without naming former Gov. Janet Napolitano, Brewer nonetheless clearly blamed her Democratic predecessor for pushing for spending increases in recent years while largely papering over the state’s developing budget problems with borrowing and fiscal maneuvers.

Brewer on Jan. 31 signed into law a package of spending cuts, raids on special-purpose funds and federal stimulus money that lawmakers used to close a $1.6 billion gap in the then-$9.9 billion budget for the current fiscal year.

Spending cuts have triggered layoffs of more than 1,000 tax auditors, benefits screeners and other state employees, unpaid time off for thousands more state workers and program cuts that include temporarily closing some state parks, ending child-care subsidies for 15,000 low-income children and eliminating a welfare program for disabled people waiting for Social Security benefits.

The 2008-09 fiscal year’s shortfall of 16 percent was the largest by percentage among states for the current fiscal year, according to the National Conference of State Legislatures survey.

Brewer was the elected secretary of state when she became governor Jan. 20 when Napolitano resigned halfway through her second term to become secretary of Homeland Security in Obama’s Cabinet.

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MAIN POINTS

1. Temporary tax increase, approved by the Legislature and the governor or by the voters in a special election, to increase state revenues by $1 billion per year.

3. Modify Proposition 105, which requires a three-quarters vote of the Legislature to change or repeal a voter-approved measure, or to transfer funds protected by the measure.

4. Reform the tax code to bring about a state tax reduction beginning in 2012.

5. Structural budget reform: increasing the state’s rainy day fund and restricting its use, and limiting the use of “fund sweeps.”

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MORE DETAILS

More on Brewer’s budget proposal:

• Close a projected $3 billion shortfall in the budget for the 2009-10 fiscal year, which anticipates $11 billion of spending, by $1 billion of spending cuts or other changes, $1 billion of federal stimulus money and $1 billion from a temporary tax increase.

• Ask voters to loosen constitutional protections for voter-approved spending to give the Legislature flexibility for budget cuts during a crisis

• Replenish and double the state’s rainy day fund, impose new limits on raids on special-purpose funds and instill new honesty in revenue projections.

QUOTE

“We cannot balance this budget on cuts alone, nor on taxes alone, nor on federal stimulus dollars alone. We cannot place all of the burden on our children and their schools. We cannot place all of the burden on the parents that need day care so they can go to work and stay off welfare. We cannot leave the sick on the streets alone to fend for themselves only to overload our hospitals and our jails. We cannot be penny wise and pound foolish.”

Gov. Jan. Brewer

By Garry Duffy, The Associated Press

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